The list of companies tripping over themselves in handling their corporate and brand values is growing ever faster. Boards have happily preoccupied themselves with oversight committees for audit, compensation, succession planning and diversity and inclusion. And yet, these same guardians of business have no process for making crucial choices on what for most companies is the single greatest driver of shareholder value, namely, the corporate brand. In delegating those entirely to management, boards are failing in their fiduciary duty to preserve shareholder wealth.
Consider the recent fracas between Disney and Governor Ron DeSantis over Florida’s Parental Rights in Education bill, which restricts what teachers can say about gender and sexual orientation. DeSantis, who has made it his platform to fight all forms of what his base sees as leftist wokeness, saw this as the perfect opportunity to push back against corporate involvement in such culture wars. Facing a revolt from its LGBTQ employees, over what many called the “Don’t Say Gay” policy, Disney decided to stand take a stand against it, leading DeSantis to threaten to revoke the company’s special taxation status in the state. The Disney stock is down 30-40%and its CEO, Bob Chapek is out (though not for this reason only).
Disney’s reversal of fortunes isn’t an isolated case. In fact, it is part of an endless stream of similar calamities that boards have been confronted by. How about when in 2016, Nike decided to double down and back its star brand spokesperson, Colin Kaepernick for kneeling during the singing of the national anthem before each football game, when just about everyone else in the world had chosen to turn their backs on him?
How about when in 2017, CEOs that had signed on to President Trump’s American Manufacturing Council to create jobs found themselves standing alongside him right after he praised the good people on both sides when a white supremacist in his truck, mowed down and killed Heather Mayer, a protester in the Charlottesville, Va. tragedy. How about when in 2002, Ginny Rometty, IBM’s first female CEO, was publicly humiliated when the male-only Augusta Club refused to offer her a membership in the establishment where her company was a major sponsor, and its prior four chiefs were members?
Ask whether the boards of each of these companies were prepared to handle these crises. Did they have a committee with a policy, plan and process in place to get ahead of these unfolding events or were these the crises managed with a play-as-you-go game plan?
The point of this article is not to weigh in on one side or the other of the fence on these issues, but rather to shine a bright light on the principles that boards should rely on when having to make the hard choices in the face of such catastrophes of values.
Modern company boards need to establish permanent committees for safeguarding and promoting corporate and brand values in a strategic manner. It is a fundamental fiduciary duty of a board to do so. In the following, I offer some guiding principles that such corporate values committees can apply to the situations they countenance in the conduct of business:
What will a values-based stance do for long-term shareholder value?
Don’t skip over the numbers.
Many people like to say that values must be upheld without consideration of economic consequences. And yet, no decision should be made with willful ignorance of the impact of taking a public stand on a values dilemma. Management owes it to the board to say what they want to do and what it may cost the company (or conversely what the upside might be).
In the case of the Disney-Ron DeSantis war, it was important for the management to quantify in dollars and cents and present to the board what the company stood to lose or gain from the threatened changes to the governance structure of the Disney controlled Reedy Creek district. The board may still have decided to let the numbers take a hike and oppose the governor, but not without first looking at the numbers.
Shareholders over employees
Decades back, Nobel prize winning economist Milton Friedman, asserted that the sole purpose of corporations is to maximize shareholder value and as such that is the primary fiduciary duty of the board. While in recent years, management experts have taken the broader view that companies must be moved by the interest of a broader set of stakeholders, the reality is that owners matter the most. It is their company and money. When there is a significant price to pay, it is borne principally by those owners and not the broad stakeholders (though there are exceptions).
Now Disney did face an internal revolt from many of its Florida based employees whose children were going to schools where they felt academic considerations were being overshadowed by political ones, compromising their children’s education. Yet, employees are rarely the majority owners and need to be made to understand that all managers, including them, have a duty to safeguard the interest of shareholders. The bar for deviating from that principle is extremely high.
Customers over shareholders
There are times when certain shareholder must be overruled in the long-term interest of the brand and its customers. In several companies today, hedge funds and private equity companies have taken over a significant chunk of the shares. Often their value maximization horizon is short, about 3-5 years, and they focus on maximizing the exit value on the investments for their fund holders. This can often mean that short-term interests gain primacy over the long-term. If a brand can be juiced up with cost cuts to allow such owners to have favorable exit value, then that is preferred by them even if the brand suffers in the long-term post their exit.
At Unilever, that is the challenge that Alan Jope, the CEO faced. He made a public commitment to steer his company towards brands that could have a purpose associated with them – with the thought being that in the long-term that builds greater and more defensible differentiation and loyalty with consumers. However, hedge fund managers wanted none of that. How about margin expansion they asked, ultimately pressuring Unilever to direct Jope to an earlier than expected retirement.
In these instances, it is in fact the duty of the board to weigh the long-term interests of the company and the strength of its brands versus short-term dress-me-up measures that may prove detrimental ultimately.
Is this an issue that the company must take a stand on?
Companies don’t need to dive headlong into every values dilemma that crops up. In most cases, they may be well advised to keep their distance. Conversely, not every involvement in a values-based issue has negative consequences. Some, in fact, may strengthen the company’s brand and enhance its position with its customers.
In this regard, here are some questions to ponder over before plunging into the pool of values-based predicaments and taking a public bath.
Are the values at stake what your brand is about?
Nike’s core proposition is about being the brand that stands alongside its athletes, who in turn believe ardently in their own capacity to achieve greater performance goals for themselves. Sometimes, they do so even when others don’t see those possibilities in them. Thus Nike’s brand is about believing in yourself to effect meaningful change not only in self but also ultimately in the world by inspiring others, especially when you are a world class athlete like Colin Kaepernick.
When Kaepernick took the knee in support of Black Lives Matter (BLM) movement, Nike chose to support him whole hog. But it was not because Nike had BLM on its agenda, rather it was because their brand spokesperson had it on his. And Kaepernick was going to pursue his beliefs, notwithstanding the cost – a motto that is the essence of what the brand Nike stands for.
Nike placed a bigger than life banner in Times Square with Kaepernick’s face splashed across it in black and white with the words “Believe in Something, Even If It Means Sacrificing Everything” flaming across it in stark relief. Rightwing protestors organized rallies in different cities to burn Nike shoes in bonfires. But Nike’s core customer cheered for their brand and bought more shoes than ever before. Nike’s share price went up through the roof and the board could heave a sigh of relief. It had made a great call.
Moral of the story? Lean forward resolutely when the cause, even if controversial, is true to your brand.
Is the crisis close to home?
The world is a pretty messed up place. There is cruelty and human tragedy of untold proportions in many parts of the world. Just look around you. There is what is described by some as the ongoing genocide of Uighur Muslims in China, persecution of the gay community in Russia, the slaughter of the Rohingyas in Myanmar and the suppression of women in Iran and Afghanistan.
Yet, it is not the business of business to remedy every inequity – there are other channels for shareholders, who are so inclined, to do so.
However, if you are a US company, it is not possible for you to not take a stand against the mindless killing of George Floyd because that’s a fire burning in your own house – your country and community. This criterion alone may not be enough for the company to weigh in, but it is a cautionary signal. Arguably, Disney’s employees being infuriated with DeSantis’ interference in their children’s education was a fire close to home – which qualifies it for careful consideration but doesn’t necessarily push it over the finish line. Disney’s brand is about entertaining children by bringing to life their fantasies, and not by shaping their school curriculum.
Does your company have blood on its hands?
Now an injustice could happen far from home, but if your company is directly or indirectly a cog in the wheel, helping to perpetuate it, you must take a stand. For example, if blood diamonds in Sierra Leone, sweatshops in Dhakka and the deforestation in the Brazilian Amazon, are part of your company’s supply chain, that’s a problem. No company should profit from and enrich its shareholders from the misery of others.
This misstep would seem like it is easy for most companies to avoid, but it isn’t. That is because there are usually enormous profits tied to the participation in these business systems.
The recent opioid crisis mired many great companies in its wake. The list unsurprisingly included the largest and most elitist of pharmaceutical companies, mega-distributors and national pharmacy retailers. The one surprise member on that directory was the distinguished consulting firm, McKinsey & Co., where the author of this article formerly worked. It was unfortunately caught in the morass with blood on its hands for having for years unthinkingly offered its consulting services to Purdue Pharma, the principal culprit in the racket.
In the grand scheme of things, the consulting fees earned by McKinsey from Purdue were a pittance compared to its over all revenues. But the likely reason that such an awful choice of client slipped through the cracks was that there was no committee on the board charged with watching over its corporate values and board.
If you are not looking ahead at where you are going, you won’t go far before you fall.
Should your company lead or follow in taking a values-based stand?
As I indicated before, taking values-based stands doesn’t always lead to a mishap. Nike, by all accounts, continued to fare well even after lending its heft to Colin Kaepernick. Boards have to know when to let the company drive the bus and when to let it take a back seat.
A company should only lead if the cause is about or intertwined with the truth of its (the company's) brand. Else, there is safety in numbers in simply being a follower.
When President Trump appeared to offer words of support to neo-Nazi demonstrators at Charlottesville, Merck’s CEO Ken Frazier, a black man, became the first to resign from the manufacturing council. That earned Merck the president’s wrath who promptly tweeted, “Now that Ken Frazier of Merck Pharma has resigned from President's Manufacturing Council, he will have more time to LOWER RIPOFF DRUG PRICES!”
However, Johnson & Johnson’s CEO, Alex Gorsky, who was also on the council initially announced that he was committed to remaining on board as the company needed to have a voice in shaping healthcare related policies. He might have have waited a day. This sparked a public fury both from both inside and outside of the company and Gorsky quickly retreated and became a fast-follower in resigning from the council. While no would have awarded Gorsky a prize for standing up for racial injustice, he was just one of the many CEOs that were abandoning ship at that point. Gorsky did just fine for his shareholders, even if somewhat awkwardly.
Johnson & Johnson as a company is often a quiet follower when it comes to value-based matters and most of the time that strategy works just fine.
Moral of the story: Lead only if taking a stand on the issue is consistent with what your brand’s DNA is or when the company would have blood on its hands with its continued participation.
Most companies have gilded values statements that are reverently enshrined on their websites and in their annual reports. Yet, most do not have a board level governance committee exercising oversight over matters of corporate and brand values, and no clear playbooks for taking a stand on these matters. Often, these crises are left to the PR department, whose charge it is to draft communications, not be the guardian of shareholder value.
Thus, playing Russian roulette has become the norm for boards at many companies.
On the other hand, for companies, whose brand were forged in values, such governance committees are not new news. Ben & Jerry’s has had, for many years, an independent board (despite being a part of Unilever) that is charged with “preserving and expanding Ben & Jerry's social mission, brand integrity and product quality, by providing social mission-mindful insight and guidance to ensure we're making the best ice cream possible in the best way possible.”
Not every company can be a Ben & Jerry’s or Patagonia, but they can certainly learn from them.